#toronto businesses now demanding their offices be close to accessible, rapid public transit systems...

An in-depth analysis of the current state and future impact of mass transit on commercial real estate in the Greater Toronto Area.

Toronto Rapid Transit

Accelerating success.

A Knowledge Leader Publication.

Downtown

Union Station Hub

Midtown

Central North

Central East

GTA North GTA East

GTA West

PearsonInternational

Airport

BillyBishopAirport

Introduction

KEY INSIGHTS >

• The share of GTA office space that is currently within walking distance of rapid public transit is only 45% of total space.

• 60% of all GTA office space that is within walking distance of rapid public transit is in Class AAA or Class A buildings.

• The GTA markets (Downtown, Midtown and Central North), with more than 60% of their office space within walking distance to public transit, are performing well as these markets have higher average rental rates and lower average vacancy rates than the rest of the GTA.

• These markets are seeing higher asking rental rates, lower vacancy rates, fast pre-leasing and a willingness to pay higher rents by tenants for office space that’s close to public transit.

• Throughout the GTA, more than 2.5 million SF of office space is under construction that’s within walking distance of a rapid public transit station.

• Recently throughout the GTA many office buildings that are within walking distance to rapid transit have continually experienced steady positive absorption. For example, Q2, 2015 absorption numbers: walking distance space (+117,870), non-walking distance space (-60,937).

With numerous levels of government focused on expanding the Greater Toronto Area’s (GTA) rapid public transit infrastructure, the region has a great opportunity to further advance its position as one of North America’s most competitive office markets. Daily average commutes within the GTA are continuing to rise and are now at 65.6 minutes, as the current transit infrastructure is over capacity1.The region’s highway infrastructure is especially burdened and has little to no room for expansion, placing greater importance on using and expanding rapid public transit (subway, Go Train and light rail). Although driving remains the region’s most-used commuting option, more Torontonians are choosing to use rapid public transit to get to work than ever before with an average of more than one million customer-subway-trips each weekday2. In turn, many businesses are explicitly demanding space within some of the few Greater Toronto office employment districts where rapid public transit is

accessible within walking distance. For this report, we define within walking distance as being located within a radius of 400 meters or less from a rapid transit station (see methodology). Based on this growing shift in demand, what are the relationships within the GTA between commercial real estate and rapid public transit?

Our research confirms there is an increased demand and willingness to pay a premium for office space within walking distance of rapid public transit. With the two rapid public transit lines currently under construction and five proposed projects, the GTA’s future commercial real estate leasing and investment landscape will change considerably. This report provides an overview of some of the broad - overlying results from Colliers International’s extensive analysis of office leasing and transportation within the GTA.

GTA Major Highways

Current TTC Subway

Current GO Rail Transit

Smart Track (Proposed)

Eglinton Crosstown (Under Construction)

Sheppard East LRT (Proposed)

Finch West LRT (Proposed)

Hurontario - Main LRT (Proposed)

Toronto-York Spadina Subway Extension (Under Construction)Scarborough Subway Extension (Proposed)

0 10

Kilometers

SPARK | TORONTO RAPID TRANSIT collierscanada.com/research

76%

87%

64%

5%0%

29%

5%

45%

DowntownTotal

Midtown Total Central NorthTotal

Central EastTotal

GTA NorthTotal

GTA EastTotal

GTA WestTotal

GTA Total

Percentage of Total SF

Current Transit

• In most markets in which rapid public transit is available, office space that is within walking distance to transit has a very low average vacancy rate and higher average rents, across all building classes.

• In the GTA, the average rent for buildings that are within walking distance is about $7.00 more per SF than buildings that are not walking distance.

• The Midtown market has the highest percentage of office space that’s within walking distance of a rapid public transit station at 87% compared with 76% for the Downtown market and 64% for the Central North.

• The GTA North market has no office space that’s within walking distance of a rapid public transit station compared with just 5% for both the Central East and GTA West markets.

76%

87%

64%

5%0%

29%

5%

45%

DowntownTotal

MidtownTotal

Central NorthTotal

Central EastTotal

GTA NorthTotal

GTA EastTotal

GTA WestTotal

GTA Total



Percentage of office space within walking distance of a rapid transit stop by market >

ACCESS EXTENDS BEYOND THE CORE

Comparative vacancy and rental rates for office space that is within walking distance of a rapid transit stop and space that is not within walking distance by market >

WALKABILITY ENHANCES DEMAND

• The average square feet per building, for buildings that are within walking distance of a transit station is much higher than those that are not within walking distance (163,691 SF vs. 73,797 SF in the GTA).

AVERAGE BUILDING WITHIN 400M TO TRANSITBUILDING SIZE: 163,691 SF

AVERAGE BUILDING NOT WITHIN 400M TO TRANSIT BUILDING SIZE: 73,797 SF

Comparative average building size for office space that is within walking distance of a rapid transit stop and space that is not within walking distance by market >

ACCESS TO TRANSIT SUPPORTS HIGHER DENSITIES

WALKING DISTANCETO TRANSIT

YES - NO MARKET CLASS

VACANCY RATE (%)

W. AVG. GROSS RENTAL RATE

($/SF)

YES GTA TOTAL A 4.8% $36.93

NO GTA TOTAL A 7.4% $29.67

In the GTA, the average rent for Class A buildings that are within walking distance is about $7.25 more (20% higher) per SF than Class A buildings that are not walking distance, while also having a lower average vacancy rate.

CLASS A PERFORMANCE

DowntownTotal

MidtownTotal

CentralNorth Total

CentralEast Total

GTA EastTotal

GTA NorthTotal

GTA WestTotal

GTA Total

AAA 100% 100%

A 78% 98% 85% 9% 56% 0% 7% 46%

B 64% 91% 46% 2% 13% 0% 3% 38%

C 65% 60% 9% 2% 12% 0% 2% 30%

0%

20%

40%

60%

80%

100%

120%

Perc

enta

ge o

f Ind

ivid

ual C

lass

Tot

al

DowntownTotal

MidtownTotal

CentralNorth Total

CentralEast Total

GTA EastTotal

GTA NorthTotal

GTA WestTotal

GTA Total

AAA 100% 100%

A 78% 98% 85% 9% 56% 0% 7% 46%

B 64% 91% 46% 2% 13% 0% 3% 38%

C 65% 60% 9% 2% 12% 0% 2% 30%

0%

20%

40%

60%

80%

100%

120%

Perc

enta

ge o

f Ind

ivid

ual C

lass

Tot

al

• In every market, Class A buildings have the highest share of all buildings in the same class within walking distance to a transit station. This is the result of a continual clustering of Class A space 400m to transit.

• This clustering of high-quality buildings that are close to rapid public transit will continue, with more than 2.5 million SF of Class A class office space currently under construction that is within walking distance to a station.

Percentage of office space (by individual building class) within walking distance of a rapid transit stop by market >

GTA Class A rental and vacancy rates

Opportunity: Future transit will provide an opportunity within certain office markets that are currently not served by rapid transit such as the GTA West and Central East.

• The average sale price per SF for all GTA office buildings sold in Q1, 2015 that are walking distance to transit was $421 compared to $197 for buildings not within walking distance.

PURCHASERS HAVE PAID A PREMIUM

MIDTOWNWalking Distance to Transit Yes-No

Vacancy Rate (%)

W. Avg. Gross Rental Rate ($/SF)

YES 2.8% $39.69

NO 4.0% $32.66

GTA NORTHWalking Distance to Transit Yes-No

Vacancy Rate (%)


YES -

NO 8.3% $27.30

GTA EASTWalking Distance to Transit Yes-No

Vacancy Rate (%)


YES 11.1% $29.79

NO 5.1% $22.36

DOWNTOWNWalking Distance to Transit Yes-No

Vacancy Rate (%)


YES 3.0% $55.44

NO 1.8% $42.81

CENTRAL NORTHWalking Distance to Transit Yes-No

Vacancy Rate (%)


YES 2.1% $39.26

NO 1.1% $33.73

CENTRAL EASTWalking Distance to Transit Yes-No

Vacancy Rate (%)


YES 0.0% $17.12

NO 5.7% $27.74

GTA WESTWalking Distance to Transit Yes-No

Vacancy Rate (%)


YES 9.3% $33.08

NO 10.0% $27.38

GTA TOTALWalking Distance to Transit Yes-No

Vacancy Rate (%)


YES 3.2% $34.32

NO 7.0% $27.23

Walking Distance to Transit Yes-No Class Sale Price per SF

YES A $353

NO A $201


YES C $341

NO C $260


YES B $375

NO B $214


Downtown

Union Station Hub

Midtown

Central North

Central East

GTA North GTA East

GTA West

PearsonInternationalAirport

BillyBishopAirport

Downtown

Union Station Hub

Midtown

Central North

Central EastC stt

GTA North GTA East

GTA West

PearsonInternationalAirport

BillyBishopAirport

Future Transit• Two future areas of opportunity that

currently are not connected to rapid public transit and are experiencing higher vacancy rates are in the GTA West and Central East.

AIRPORT CORPORATE CENTRE• Within the GTA West, primarily the Airport

Corporate Centre (ACC), which is already one of the GTA’s largest office submarkets (about 6 million SF of office space), could see a large transformation with the completion of SmartTrack (current public transit travel time from Airport Corporate Centre to Downtown: 65 minutes; with SmartTrack: 24 minutes).

• Only one existing building in the Airport Corporate Centre would be within walking distance of the proposed stop. An opportunity would be to connect the current office stock and develop new, higher-density, transit-available space in the Airport Corporate Centre that’s near to the proposed station. The availability of rapid public transit and a better downtown connection could help this area better compete in attracting tenants.

DON MILLS / EGLINTON• Within the Central East, particularly Don Mills/

Eglinton, should become more competitive

in regards to office leasing once the Eglinton LRT is complete. The office buildings within this area are currently spread out, low-density and primarily Class B. These buildings could be redeveloped to increase density within walking distance of the eventual stops. A signal of change might already be apparent as the large Celestica site at the corner of Don Mills and Eglinton was sold to numerous developers that aim to create an office, retail and residential mixed-use community on the site.3

GTA Major Highways

Current TTC Subway

Current GO Rail Transit

Smart Track (Proposed)

Eglinton Crosstown (Under Construction)

Sheppard East LRT (Proposed)

Finch West LRT (Proposed)

Hurontario - Main LRT (Proposed)

Toronto-York Spadina Subway Extension (Under Construction)Scarborough Subway Extension (Proposed)

Area of Opportunity Don Mills / Eglinton

Area of Opportunity Airport Corporate Centre

AREAS OF OPPORTUNITY

• Only 18% of all GTA office space is currently within walking distance of the proposed or under construction transit stations.

• Right now, there is a modest amount of office space within 400 metres of proposed and under construction transit projects. That’s because numerous offices in markets without high order transit were built closer to highway interchanges, relying on cars for transportation. However, as the availability of rapid transit increases throughout the GTA, these new lines might encourage more developments to be located close to public transit stations.

0 0 0 0 0

0.463672452

0

0.230564879

0.353388272

0

0.8051853090.733751963

0.414530467

0.3108935240.237593212

0.4374556740.503676173

0.925975276

0.1678358710.226700449

0.341680515

0.158102444

0.695551556

0.249918

0.1429355540.074024724

0.02697882 0.039547589

0.243789018

0.06733158 0.066855233 0.082061447

SF 400m toEglinton LRT

(underconstruction)

SF 400m to FinchLRT

400m toHurontario LRT

400m toScarborough

400m to SheppardEast LRT

400m to SmartTrack

SF 400m toSpadina SubwayExtension (under

construction)

SF 400m to AnyExtension

AAA A B C

0% 0% 0% 0% 0%

46%

0%

23%

35%

0%

81%

73%

41%

31%

24%

44%50%

93%

17%23%

34%

16%

70%

25%

14%

7%3% 4%

24%

7% 7% 8%


SF 400m to FinchLRT


400m toScarborough


400m to SmartTrack

400m to SpadinaExt


AAA A B C

0% 0% 0% 0% 0%

46%

0%

23%

35%

0%

81%

73%

41%

31%

24%

44%50%

93%

17%23%

34%

16%

70%

25%

14%

7%3% 4%

24%

7% 7% 8%


SF 400m to FinchLRT


400m toScarborough


400m to SmartTrack

400m to SpadinaExt


AAA A B C

Share of total GTA office space that is within 400m of a future transit stop by building class

EGLINTON LRT & SPADINA EXTENSION FAVOUR CLASS B SPACE

MARKET PERCENTAGE OF TOTAL BUILDINGS

PERCENTAGE OF TOTAL SF

DOWNTOWN 11% 22%

MIDTOWN 23% 22%

CENTRAL NORTH 6% 8%

CENTRAL EAST 15% 19%

GTA NORTH 1% 1%

GTA EAST 32% 40%

GTA WEST 11% 14%

GTA TOTAL 12% 18%

Percentage of total buildings and office space (SF) that is currently within walking distance of every possible future transit stop by market >

• 25% of the current office space that is within walking distance of the proposed transit stations is Class B space. Some of this Class B office space could be redeveloped to take advantage of being near the transit expansions.

• When examining the only transit expansions that are currently under construction, the Eglinton Crosstown LRT and Toronto-York Spadina subway extension, more than half of the current office space that will be within walking distance of a rapid transit station is in a Class B building (50% and 70% respectively). An opportunity exists to upgrade some of this space before the expansions are completed.

0 10

Kilometers


• If all transit expansion projects were built, the percentage of current total buildings and office space (SF) within walking distance of a transit station would increase in every market.

• If every transit expansion were to be built, more than half of all current office space (SF) in the GTA would be within walking distance of transit stations.

• The numerous under construction and proposed transit expansions will increase office leasing competition throughout the GTA, as more employment areas will have access to rapid transit.

• The public transit connectivity of the Downtown office market would improve as more office space will be efficiently connected to more areas of the GTA.

55%

74%

35%

4%0%

17%

4%

25%

60%

82%

39%

18%

1%

38%

14%

34%

Downtown Total Midtown Total Central North Total Central East Total GTA North Total GTA East Total GTA West Total GTA Total

Percentage of Buildings (currently) Percentage of Buildings (including expansions)

55%

74%

35%

4%0%

17%

4%

25%

60%

82%

39%

18%

1%

38%

14%

34%



55%

74%

35%

4%0%

17%

4%

25%

60%

82%

39%

18%

1%

38%

14%

34%



Percentage of buildings that are within 400m of current only and current/future combined transit stops

76%

87%

64%

5%0%

29%

5%

45%

80%

91%

67%

23%

1%

48%

19%

53%


Percentage of SF (currently) Percentage of SF (including expansions)Percentage of office space that is within 400m of current only and current/future combined transit stops

76%

87%

64%

5%0%

29%

5%

45%

80%

91%

67%

23%

1%

48%

19%

53%


Percentage of SF (currently) Percentage of SF (including expansions)

Total number of office buildings that are currently within 400m of each future transit stop by market

Future Transit Snapshot

• SmartTrack would have the biggest impact on the current office stock in the GTA (approximately 72 buildings and 17,857,371 SF of current office space would be within walking distance of proposed SmartTrack stops).

• Major office markets that would be impacted by the SmartTrack expansion are: the Downtown, GTA West, GTA East and GTA North.

• The Eglinton and Hurontario LRT stops have the second and third highest amount of current office buildings and SF within walking distance to them.

Current & Future Transit

0

10

20

30

40

50

60

70

80

# of Bldgs 400m toEglinton LRT

# of Bldgs 400m toFinch LRT

# of Bldgs 400m toHurontario LRT

# of Bldgs 400m toScarborough

# of Bldgs 400m toSheppard East LRT

# of Bldgs 400m toSmart Track

# of Bldgs 400m toSpadina Ext


0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

18000000

20000000

SF 400m to EglintonLRT

SF 400m to Finch LRT SF 400m toHurontario LRT

SF 400m toScarborough

SF 400m to SheppardEast LRT

SF 400m to SmartTrack

SF 400m to SpadinaExt


0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

18000000

20000000

SF 400m to EglintonLRT

SF 400m to Finch LRT SF 400m toHurontario LRT




SF 400m to SpadinaExt


Total office space (SF) that is currently within 400m of each future transit stop by market

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

18000000

20000000

SF 400m to EglintonLRT (under

construction)

SF 400m to FinchLRT

SF 400m toHurontario LRT




SF 400m to SpadinaSubway Extension

(under construction)


0

10

20

30

40

50

60

70

80

# of Bldgs 400m toEglinton LRT






# of Bldgs 400m toSpadina Ext


0

10

20

30

40

50

60

70

80

# of Bldgs 400m toEglinton LRT (under

construction)






# of Bldgs 400m toSpadina SubwayExtension (under

construction)



MethodologyColliers International proprietary Q1, 2015 GTA office market data was primarily used for this report.

High occupancy rail and LRT (not including buses and streetcars) is the only form of rapid public transit used in our report as the numerous papers reviewed, along with the Colliers 2014 Tenant Survey have found this mode of transit to have the greatest effect on commercial business location decisions5. For the current transit analysis, TTC subway and GO Transit rail routes were used. For the future transit analysis we used the following routes: Eglinton Crosstown LRT (under construction), Toronto-York Spadina subway

extension (under construction), SmartTrack (including the Scarborough subway extension) (proposed), Finch West LRT (proposed), Hurontario-Main LRT (proposed), and the Sheppard East LRT (proposed).

Geospatial evaluation was then performed to determine whether or not a building is within or not within walking distance of a current or future transit station. Every office building in the GTA across all asset classes (AAA, A, B and C) were evaluated. A walking distance of a 400-metre radius from a major transit station was used. This distance was used as the Ontario Ministry of Transportation and other transit agencies set 400 meters as a standard

walking distance6. Vacancy rates, rental rates, absorption, deal velocity (days on the market), building class and other relevant real estate data was then examined for each building. Results were also calculated across every GTA office Submarket, Market and the GTA as a whole. Examination looked at 1.) Whether a building is within walking distance of current rapid public transit 2.) Walking distance to a proposed or under construction transit station 3.) Walking distance to a current or future transit station combined. For this SPARK Report only some of the Market and GTA total results are reported. For more detailed information please contact Colliers International.

1. University of Waterloo, Canadian Index of WellBeing (2014).

2. Toronto Transit Commission, Subway Ridership (2013).

3. Real Estate Management Industry News, Celestica to Sell Toronto Property to Developers (2015).

4. City of Toronto, Toronto Employment Survey (2014); Strategic Regional Research Alliance, The New Geography of Office Location (2011).

5. Colliers International, 2014 Tenant Survey (2014).

6. Ontario Ministry of Transportation, Transit-Supportive Land Use Planning Guidelines (1992).

References

WEIGHTED AVERAGE ASKING NET RENT: The dollar amount requested by landlords for an available space, expressed as an average based on the weight of available space.

AVAILABILITY: The amount of available space and available space to be delivered to the market within six months, divided by the market’s inventory base including those future deliveries. Available space is space that is available for lease, and may or may not be vacant.

NET ABSORPTION: The net change in physically occupied space between the current measurement period, and the last measurement period. It can be either positive or negative.

VACANCY: The amount of vacant space divided by the building inventory base. Vacant space is physically unoccupied, and it may or may not be available for lease or sublease. This is physical vacancy. It is not determined whether a tenant is paying rent on the space.

Glossary of Terms

ConclusionOffice space that’s accessible to rapid public transit is performing well partially because supply is being out-paced by demand. This is the result of numerous designated employment districts within the GTA having no access to rapid public transit. With two under construction and five proposed rapid transit projects throughout the GTA, competition in attracting companies amongst different office markets should increase, as the supply of rapid transit will become available in markets currently without access. While increasing regional competition, the expansions should also further strengthen the Downtown core’s accessibility, as more communities will be better connected to Toronto’s largest office

market. As for the individual expansions, we found that SmartTrack, then the Eglinton Crosstown LRT and then the Hurontario-Main LRT could have the greatest immediate influence on the current stock of office space in the GTA. Overall, office leasing tenants and commercial real estate purchasers are continually increasing their demand for properties that are close to a rapid public transit station. The location of the proposed and under construction transit stops could greatly change the GTA’s office landscape.

This report has presented some of the initial findings of Colliers International’s larger analysis

of the relationships that exist between the current/future transportation infrastructure within the GTA and commercial real estate. This work builds upon research by other organizations such as the City of Toronto and the Strategic Research Alliance 4. Our larger examination further studies the existing relationships between vacancy rates, rental rates, absorption, deal velocity, and other important real estate metrics with transportation (when holding other factors constant) in the GTA. This detailed information is also available at the more defined geographical submarket level – such as the financial core, downtown west, and downtown east) – where the results are more robust and neighborhood specific.


Colliers International Market Intelligence

Uncommon Knowledge is the essential ingredient in all services offered by Colliers International Market Intelligence.

We take a forward-thinking approach to market data and trends to create information of value beyond everyday market analysis. We frame this in a real-world context directly applicable to business decisions to maximise the relevance of our offerings.

For more commercial real estate market information, please visit: www.collierscanada.com/research

This document/email has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and /or its licensor(s). © 2015. All rights reserved. This communication is not intended to cause or induce breach of an existing listing agreement. Colliers Macaulay Nicolls Brokerage Inc. (Vancouver). *Personal Real Estate Corporation. PO#11672

JOHN ARNOLDIExecutive Managing Director | Toronto BrokeragePhone: +1 416 643 3733Email: [email protected]

KIMBERLEE WEST Team Leader, Market Intelligence | Toronto Phone: +1 416 643 3776Email: [email protected]

SHAWN GILLIGAN Market Intelligence Coordinator | Toronto Phone: +1 416 607 4325Email: [email protected]

DAVID PARKER Mapping Design Specialist | TorontoPhone: +1 416 643 3499Email: [email protected]

Contact Us: